In the last few years, NPS has emerged as the best option for retirement planning . Many people invest in this scheme because its tax benefits are attractive. Despite this, many investors are unable to take full advantage of the tax breaks available in this scheme.
Actually, if your employer (the company in which you work) contributes up to 10% of your basic salary to the NPS corpus, then this amount will not come under the purview of tax. But, there has been a lack of enthusiasm among the employees to take advantage of it.
PFRDA chairman Deepak Mohanty had told Moneycontrol in June that NPS has a lot of potential, but it is currently underutilized. He told that PFRDA has linked about 13,000 companies to this scheme. But not many employees are showing interest in this scheme.
Let us try to understand how you will benefit if your employer contributes to your NPS account.
Tax Deductions in NPS
If you voluntarily contribute to NPS, you can claim a deduction under section 80C of the Income Tax Act. For this, you have to use the old regime of income tax. As an employee, if you contribute up to 10% of your basic salary plus dearness allowance, you can claim deduction under section 80CCD(1). You can also contribute to NPS as an individual. It is not necessary to contribute as an employee. However, your deduction will not exceed the limit of Rs 1.5 lakh available under section 80C. Apart from this, you can claim an additional tax benefit of Rs 50,000 under section 80CCD(1B). People are generally aware of these two benefits.
Very few employees take advantage of the tax benefits available under the corporate scheme. The reason for this is that people are not aware of these benefits. With the help of section 80CCD(1B), you can reduce your tax liability significantly. The condition is that for this your employer has to contribute to your NPS account. This benefit is available in both old and new regime of income tax.
Who can invest?
Resident Indians, NRIs and Overseas Citizens of India (OCI) can register themselves as NPS subscribers under the Corporate Scheme. Any person between the age of 18 to 70 years can register himself in the corporate scheme through his employer. If you are already registered as an NPS subscriber, you can share your Permanent Retirement Account Number (PRAN) with your employee. He can make his contribution to your account through this.
So if you are a salaried employee and your cost-to-company structure is such that the employer contributes to your NPS, you will be eligible for a deduction of up to 10% of your basic salary (basic plus DA). If you are a government employee then this deduction will be more 14%. You will continue to get deduction under section 80CCD(1) and 80CCD(1B) on your own contribution.
Many types of deductions and exemptions have been abolished in the new income tax regime. But even in the new regime, the tax exemption on employer’s contribution to NPS has been retained. If you select the old regime, then you will be allowed a deduction of up to Rs 1.5 lakh under section 80C. You can also claim a deduction of Rs 50,000 under 80CCD(1B).
It is important to note that your employer can contribute to your NPS account in addition to his own contribution to your EPF account. There is no compulsion on the employee and the employer to choose between the two.
